After nearly two years of a roaring bull market, the dividend yield for the S&P500 has fallen to just 1.21%. Income investors can do much better with quality individual stocks. Here are two that could significantly increase your passive income by 2025.
Coca-cola‘S (NYSE: KO) The forward dividend yield currently stands at 2.9%, which is very attractive for an iconic brand that generates high sales volumes every year. Companies with recurring customer revenue tend to be safe dividend stocks because high sales volumes lead to more predictable financial results.
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Coca-Cola currently pays a quarterly dividend of $0.485 per share, which puts its payout ratio at 68% based on 2024 earnings expectations. This means the company is rewarding shareholders with above-average returns by paying out only about two-thirds of annual earnings in dividends to turn. This is a sustainable payout level for Coca-Cola given the company’s growth and focus on improving margins.
The stock rose to new highs this year, but retreated after its recent earnings report. Coca-Cola’s non-GAAP (generally accepted accounting principles) adjusted revenue was 9% higher than the prior-year quarter, but that’s mainly due to price increases. The volume of Coca-Cola packaging has shown a negative trend over the past two years. It rose 4% y/y in Q3 2022, 2% y/y in Q3 2023 and 1% y/y in Q3 2024.
I wouldn’t avoid buying the stock because of the recent weakness in unit sales. If the company were to experience stronger sales volumes, its shares would likely trade higher and its dividend yield would be lower. Unit volumes appear to have declined due to weak consumer spending trends, which are impacting the retail sector.
Most importantly for dividend investors, Coke is doing well where it counts, with adjusted operating margin up one percentage point to 30.7% and adjusted earnings up 5% year over year.
Strong profitability is what ultimately pays off, so with analysts expecting the company to report 5% annualized growth in the coming years, Coca-Cola investors should see several years of consistent dividend increases.
UPS (NYSE:UPS) has a higher forward yield than Coca-Cola and is currently at 4.76% – close to the all-time highs of UPS stock. The shipping giant has increased its dividend for fifteen years in a row and currently pays a quarterly dividend of $1.63 per share. The downside is that its payout ratio is much higher than Coca-Cola’s at 87%, which isn’t ideal, but there are a few reasons why investors shouldn’t hesitate to add the stock to their income portfolio.
